The irony did not go unnoticed by some of the Muscovites who were queuing outside a McDonald’s on Tuesday night, shortly after the company announced it was temporarily closing its nearly 850 locations in Russia.
“My dad once told me how he waited in a long line when McDonald’s opened when he was young. And now I ended up in line too, but for a very different reason. History can be funny,” said Dmitry Grigoryev.
When McDonald’s opened its doors on Moscow’s Pushkin Square in 1990, thousands of people lined up. Inside and outside the country, the arrival of the golden arches was seen as a definitive sign of the end of the cold war.
The adhesion of Russians to Western fast food, pop culture and jeans came to signify the country’s integration into the global capitalist system. Despite the growing authoritarianism under Vladimir Putin over the past decade, international brands have remained eager to keep their doors open in Moscow and other big cities with a sizable middle class.
But the Russian invasion of Ukraine on the morning of February 24 changed everything. Since then, there has been an unparalleled departure from international companies, including Toyota, Heineken, Nike, Apple, Exxon, Ford, Zara, Netflix and Ikea.
“The exodus of companies is really impressive,” said Maria Shagina, an expert on international sanctions at the Finnish Institute of International Affairs and the Geneva International Sanctions Network. “The speed at which this is happening is unknown to modern history. Russia is being completely decoupled from the global business, technology and banking communities.”
Shagina said Western sanctions, such as the decoupling of some Russian banks from the Swift system and new export controls, would complicate the operations of Western companies.
But she said most companies that suspended operations did so out of reputational concerns, given the war’s profound unpopularity in the West.
“Of course the Kremlin expected the West to impose sanctions, but I’m not sure they expected how toxic Russia would become. These companies are not only leaving because of the sanctions, but mainly because they believe that Russia cannot be invested in right now. That it is not right to do business there.”
In a sign that Russian officials did not expect such a dramatic departure from companies, a senior official in Russia’s ruling political party called for the operations of Western companies that have left the country to be nationalized.
“This is an extreme measure, but we will not tolerate stabs in the back and we will defend our people,” United Russia leader Andrey Turchak said in a statement posted on the party’s website. Turchak said such a move would help prevent job losses and maintain Russia’s ability to produce goods domestically.
It’s not just the mass-market industry that has been hit. Images posted on social media on Monday showed empty aisles in Moscow’s luxurious Tsum shopping mall, popular with Russia’s wealthy elite.
Virtually every major fashion brand, including Burberry, Hermès, Gucci, Chanel and Louis Vuitton, has temporarily ceased operations. On Monday, Condé Nast said it was suspending its publishing activities.
“I think Russians are in shock as their world is falling apart at the speed of light,” said Katya Fedorova, who runs a widely read fashion and lifestyle blog on Telegram. “Many still do not understand how much the sanctions will affect them and their daily lives in the coming months.
“But the scariest part is not leaving luxury brands. It’s mass-market brands like Mothercare leaving the country, with very few Russian substitutes available. It is absolutely insane how the Russian government managed to destroy all the connections that were built with the international retail sector for 30 years in just 10 days.”
Analysts offered a grim forecast of Russia’s economic prospects. The Institute of International Finance last week predicted a 15% contraction in Russia’s GDP in 2022, double the decline in the global financial crisis. “We see the risks as tilted to the downside. Russia will never be the same again.” I wrote IIF chief economist Robin Brooks.
For now, McDonald’s and Ikea say they will keep their employees on the payroll. But experts like Shagina believe the scale of the foreign exodus is likely to lead to an immediate rise in unemployment, even before the impact of Western sanctions is felt. “We are just [in] in the second week, sanctions need time to really bite,” Shagina said.
Russia’s ruble has fallen sharply since the start of the war, losing half its value against the dollar and euro. The stock market has been closed since the invasion. Morgan Stanley said on Monday that Russia could face a debt default as early as next month.
Shagina said he expects the sanctions to increase inflation while hurting Russia’s purchasing power. A major recession combined with the exodus of Western brands could significantly alter everyday life for ordinary Russians, Shagina said.
“Russia will go back to the 1990s, and that was not a particularly stable time for most,” she said.